28 Jun 2024

Some thoughts on SPIVA reports

SPIVA reports are a popular data point that proponents of index investing use to show how actively managed portfolios are doomed to underperform the broader market. Without going into the active vs passive debate, I want to put forth a few concerns I have about SPIVA reports.

  • Conflict of interest. SPIVA reports are published by S&P Global—a for-profit organisation that creates and maintains indices. When AMCs launch index funds tracking S&P indices, the AMCs pay S&P to get access to the index data.
        The more index investors are in the market, the more money S&P Global makes. Of course, S&P will show index funds in a positive light.
  • Factor indices are conveniently excluded. In addition to market-cap weighted indices, S&P (and other index curators) also publishes factor indices. You know, the likes of Low Volatility, Alpha, ESG, etc indices. While they are dressed up like passive indices, they have a lot of resemblance to active portfolio construction.
        These indices can and do underperform the broader market regularly. But funds tracking such factor indices are not evaluated by SPIVA reports.

I am not asking anyone to ignore SPIVA reports. Nor am I calling S&P’s intentions bad. All I am saying is that index funds don’t become great just because SPIVA reports praise them year after year.

If an electric car maker publishes a report of how petrol/diesel cars are bad for us, how much trust/skepticism would you have on that report? A similar level of trust/skepticism is warranted for SPIVA reports too.

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